Do Personal Loans Affect Your Credit Score?

Credit scores are very sensitive and can easily drop. But how do personal loans affect your credit score? Find out as we explore the 7 pros & cons.
Do Personal Loans Affect Your Credit Score_

Personal loans can positively and negatively impact your credit score, depending on how you manage them.

Understanding these impacts is crucial, especially when considering future financial needs like obtaining a home loan. So, do personal loans affect your credit score? Find out below.

How do personal loans affect your credit score?

Personal loans can positively affect your credit score by building or diversifying your credit history. Making regular, on-time payments demonstrates financial responsibility and can boost your score. Successfully managing a loan and keeping the account active after repayment also reflect well on your credit profile.

Conversely, personal loans can negatively impact your credit score if mismanaged. Missed or late payments significantly damage your score, and multiple loan applications in a short period can suggest financial instability. Therefore, assessing your repayment capacity and managing loans responsibly is essential to maintaining a healthy credit score.

Let’s dig a little deeper into how personal loans affect your credit score below.

Personal loans credit score

7 Positive Impacts of a Personal Loan on Your Credit Score

  1. Building Credit History: Taking out a personal loan helps you establish or build your credit history, which is essential if you have no prior credit.
  2. Timely Payments: Consistently making on-time payments demonstrates that you are a responsible borrower, which can boost your credit score.
  3. Paying Ahead: Repaying the loan faster than required can reflect positively on your financial management skills.
  4. Regular Payments: Making regular payments shows lenders you are reliable and haven’t overextended yourself financially.
  5. Reduced Credit Utilisation Ratio: Using a personal loan to consolidate credit card debt can reduce your credit utilisation ratio. This ratio is the amount of credit you’ve spent divided by your total credit. Lowering this to below 30% by paying off credit cards can boost your score.
  6. Diverse Credit Mix: Having a personal loan adds to your credit mix, which can improve your credit score by showing you can manage different types of credit.
  7. Future Loan Eligibility: Successfully managing a personal loan can make you eligible for other types of credit, such as home or car loans.

Pros & Cons of a personal loan on your credit score

7 Negative Impacts of a Personal Loan on Your Credit Score

  1. Missed Payments: Failing to make regular payments will damage your credit score.
  2. Co-Signing Risks: Co-signing a loan can negatively affect your credit if the primary borrower misses payments.
  3. Payment Defaults: Defaulting due to excessively overdue payments can result in a negative listing against your name, alerting lenders that you are a risky borrower.
  4. Frequent Loan Applications: Multiple loan applications in a short period can make you appear as a high-risk borrower and negatively impact your credit score.
  5. Poor Financial Planning: Taking out a loan without accurately assessing your repayment capacity can lead to missed payments and a lower credit score.
  6. Lack of Credit History: An absence of credit history can make it difficult for lenders to assess your creditworthiness, leading to a lower credit score.
  7. Late Payments: Repeatedly paying a loan after the due date can significantly damage your credit score.


Personal loans can either improve or lower your credit score, depending on how they are managed. To maintain a good credit score, ensure you make regular, on-time payments and avoid overextending yourself financially.

Proper management of personal loans can make you a more attractive candidate for future credit opportunities, including home and car loans.

If you would like to apply for a personal loan, then Australian Lending Centre has a wide range of opportunities available. Apply online today for support.

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